AUDITOR S OPINION ON THE FINANCIAL STATEMENTS OF BANK HANDLOWY W WARSZAWIE SA

TRANSLATION AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS OF BANK HANDLOWY W WARSZAWIE SA To the Shareholders of Bank Handlowy w Warszawie SA We hav...
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AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS OF BANK HANDLOWY W WARSZAWIE SA

To the Shareholders of Bank Handlowy w Warszawie SA We have audited the accompanying financial statements of Bank Handlowy w Warszawie SA located in Warsaw. These financial statements consist of: an introduction, the balance sheet as at 31 December 2001 with total assets and total liabilities and equity of PLN 33,150,440 thousand; the statement of contingencies and commitments granted as of this date amounting to PLN 9,764,895 thousand; the profit and loss account for the year then ended with a net profit of PLN 163,636 thousand; the statement of changes in shareholders’ equity for the year then ended with a balance amounting to PLN 5,905,690 thousand; the cash flow statement for the year then ended with an increase in cash amounting to PLN 1,919,490 thousand; and notes to the financial statements. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted the audit in accordance with International Standards on Auditing, as issued by the International Federation of Accountants, section 7 of the Polish Accounting Act dated 29 September 1994 (Official Journal No. 121, item 591 with subsequent amendments) and the professional norms established by the Polish National Council of Certified Auditors. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, these financial statements have been prepared from properly maintained accounting books and present fairly, in all material aspects, the financial position of the Bank as at 31 December 2001 and the

TRANSLATION

results of its operations and its cash flows for the year then ended in accordance with the accounting standards applied in Poland as set out in the Polish Accounting Act dated 29 September 1994 (Official Journal No. 121, item 591 with subsequent amendments), the Polish Banking Supervisory Commission Resolution No. 1/98 dated 3 June 1998 on the special rules for bank accounting and the notes to the financial statements (NBP Official Journal No.14, item 27) and Regulation of the Council of Ministers dated 16 October 2001 regarding current and periodical information filed by issuers of securities (Official Journal No. 139, item 1569), the Regulation of the Ministry Council dated 19 November 1999 concerning additional information included in the financial statements of banks and consolidated financial statements of banks acting as issuers of securities admitted for public trading or applying to be publicly traded (Official Journal No. 96, item 1128) which have been applied on a consistent basis. As required under the Polish Accounting Act dated 29 September 1994, we also report that the information given in the Directors’ Report is consistent with the financial statements. signed on the Polish original .................................................... Certified Auditor No. 3683/5018 Janina Skwarka

signed on the Polish original .......................................................... For KPMG Polska Audyt Sp. z o.o. Certified Auditor No. 796/1670 Bogdan Dębicki, Member of the Board of Directors

signed on the Polish original .......................................................... For KPMG Polska Audyt Sp. z o.o. Richard Cysarz, Proxy Warsaw, 25 March 2002

BANK HANDLOWY W WARSZAWIE SA AUDITOR’S REPORT ON THE AUDIT OF FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

Contents 1

General

3

1.1 1.2 1.3 1.4 1.5

General information on the Bank Auditor information Legal status Prior period financial statements Audit scope and responsibilities

3 3 3 5 7

2

Financial analysis of the Bank

8

2.1 2.2 2.3

Summary of the financial statements Selected financial ratios Interpretation of selected financial ratios

8 11 11

3

Detailed report

3.1 3.2 3.3

Accounting records Internal control Notes to the financial statements

12

3.4

Statement of cash flows

3.5 3.6 3.7

Directors’ report on the Bank's activities Changes in Polish Accounting Act Information on the auditors’ opinion

2

12 12 12 12 12 13 13

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

1

General

1.1

General information on the Bank

1.1.1

Bank name Bank Handlowy w Warszawie SA

1.1.2

Registered office ul. Chałubińskiego 8 00 – 613 Warsaw

1.1.3

Commercial registration Seat of the court: Warsaw (registered by Regional Court for the city of Warsaw) Date: 22 February 2001 Registration number: KRS 000 000 1538

1.1.4

Tax Office and Provincial Statistical Office registration NIP: REGON:

1.2

526-030-02-91 000013037

Auditor information KPMG Polska Audyt Sp. z o.o. ul. Chłodna 51, XVI floor 00-867 Warsaw KPMG Polska Audyt Sp. z o.o. is registered as a company authorised to audit financial statements (number 458).

1.3

Legal status

1.3.1

Share capital The Bank was founded under the Notarial Deed dated 13 April 1870. The share capital of the Bank as at 31 December 2001 amounted to PLN 430,308,400 divided into 107,577,100 ordinary bearer shares with a nominal value of PLN 4 each.

3

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

1.3.2

Activities of the Bank According to the Bank’s Statute, the main activities include: 

opening and maintaining bank accounts both domestically and abroad;



accepting savings deposits and term deposits;



performing settlements in all forms accepted in international banking relations;



granting credits and loans in Poland and abroad;



operations with cheques and promissory notes;



accepting money deposits;



granting and accepting guarantees;



dealing with foreign exchange values for its own account or for the account of third parties and facilitating transactions abroad;



issuing banking securities;



activities in respect of issue of securities in favour of third parties;



performing safe-keeping of valuables and securities;



offering cards and effecting operations with cards;



purchasing and selling of receivables;



performing term financial operations;



performing banking activities ordered by other banks.

Additionally, the Bank may: 

take over and purchase shares, share rights and stakes in banks and shares in companies providing services for banks



serve the State Budget borrowings;



act as custodian, among other as a depository bank for pension and investment funds;



arrange and serve financial lease-agreements;



provide factoring services;



purchase and sell securities in favour of its own and third parties;



provide brokerage services and maintain securities accounts by own brokerage house;



provide consulting and advisory services in respect of financial issues;



take up commitments connected with security issues;



take over and purchase shares, share rights and stakes in non-banks, as well as keep trust units;



operate as a representative bank as defined in the Act on Bonds;



purchase and sell real estate and mortgages receivable;



account for trading on securities, property rights and derivatives;



convert debts, under conditions agreed with a debtor, into debtor’s assets; 4

Bank Handlowy w Warszawie SA

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Auditors’ report for the year ended 31 December 2001 TRANSLATION



purchase and sell derivatives in favour of its own and third parties;



provide financial services in a form of soliciting as defined in Act on Organisation and Activities of Pension Funds;



co-operate with other domestic and foreign bank and other institutions;



accept orders to purchase, sell or subscribe for participation units and investment certificates of investment fund;



1.3.3

render insurance agency services.

Board of Directors At 31 December 2001, the Management Board of the Bank was comprised of the following members:

1.3.4

President of the Management Board

Cezary Stypułkowski

Vice-president of the Management Board

Shirish Apte

Vice-president of the Management Board

Wiesław Kalinowski

Vice-president of the Management Board

Philip King

Vice-president of the Management Board

Witold Walkowiak

Vice-president of the Management Board

Edward Brendan Ward

Supervisory Board At 31 December 2001, the Supervisory Board of the Bank was comprised of the following members:

1.4

President

Stanisław Sołtysiński

Vice President

Jean Paul Votron

Member

Goran Collert

Member

Henrich Focke

Member

Krzysztof Grabowski

Member

Mirosław Gryszka

Member

Allan Hirst

Member

Krzysztof Opawski

Member

Ryszard Pessel

Member

Carlos Urrutia

Member

Edward Walsh

Member

Ryszard Wierzba

Prior period financial statements

5

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

The financial statements for the period from 1 January 2000 to 31 December 2000 were audited by KPMG Polska Audyt Sp. z o.o. and received an unqualified opinion. The financial statements were approved at the Shareholders Meeting on 25 June 2001 where it was resolved to distribute the profit from the prior financial year in the amount of PLN 204,711 thousand as follows: PLN ‘000

Dividend for shareholders General risk fund Equity reserves Staff benefit fund

130,659 50,000 21,052 3,000

Total

204,711

The closing balances as at 31 December 2000 have been properly recorded as the opening balances as at 1 January 2001. The financial statements of the Bank for the year ended 31 December 2000 were published in the "National Journal" No. B-408 dated 29 August 2001.

6

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

1.5

Audit scope and responsibilities In accordance to an engagement agreement dated 27 December 2001, we have audited the financial statements of the Bank comprising of the following: 1.

introduction;

2.

the balance sheet as at 31 December 2001, with total assets and total liabilities and equity of PLN 33,150,440 thousand;

3.

the statement of contingencies and commitments granted as at 31 December 2001 amounting to PLN 9,764,895 thousand;

4.

the profit and loss account for the year then ended with a net profit of PLN 163,636 thousand;

5.

the statement of changes in shareholders’ equity for the year then ended, with the equity as at 31 December 2001 of PLN 5,905,690 thousand;

6.

the cash flow statement for the year then ended with an increase in cash amounting to PLN 1,919,490 thousand; and

7.

notes to the financial statements.

We conducted the audit in accordance with International Standards on Auditing, as issued by the International Federation of Accountants, section 7 of the Polish Accounting Act dated 29 September 1994 (Official Journal No. 121, item 591 with subsequent amendments) and the professional norms established by the Polish National Council of Certified Auditors. According to paragraph No. 52 of the above-mentioned Accounting Act, these financial statements are the responsibility of the Bank’s management. We have conducted an independent audit of these financial statements in order to express an opinion thereon and present this, together with a written auditors’ report, addressed to the Bank’s Shareholders. On 25 March 2002 the Bank’s directors submitted a representation letter as to the completeness, fairness and accuracy of the financial statements presented for audit which, amongst other things, confirmed that there were no undisclosed matters significantly influencing the information presented in the financial statements for the year ending 31 December 2001. All our requests for additional documents and information necessary for expressing our opinion and preparing the report have been fulfilled. KPMG Polska Audyt Sp. z o.o. is independent of the Bank and the scope of the work planned and performed has not been limited in any way. The method and scope of our audit is detailed in working papers prepared by us and retained in the offices of KPMG Polska Audyt Sp. z o.o.

7

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

2

Financial analysis of the Bank

2.1

Summary of the financial statements Detailed information relating to balance sheet, profit and loss and cash flow items are included in the Bank’s financial statements.

2.1.1

Balance sheet 31 December 2001 PLN ‘000

31 December 2000 PLN ‘000

Cash and balances with Central Bank

2,322,443

699,315

Placements with, loans and advances to other banks

6,986,733

5,703,753

14,200,047

10,054,121

2,462,497

1,454,331

Investments in subsidiary undertakings

347,302

124,236

Investments in associated undertakings

217,185

407,568

Minority investments

57,770

87,514

Other securities and property rights

20,119

20,119

1,482,884

66,952

902,732

664,275

3,851,119

1,547,206

299,609

173,103

33,150,440

21,002,493

ASSETS

Loans and advances to customers Debt securities

Intangible fixed assets Tangible fixed assets Other assets Interperiod settlements

TOTAL ASSETS

8

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

31 December 2001 PLN ‘000

31 December 2000 PLN ‘000

212,486

315,483

4,895,223

5,356,138

17,210,185

10,166,268

-

4

3,773,452

1,095,356

Accruals and deferred income

727,491

554,363

Provisions

425,913

275,330

Share capital

430,308

279,670

3,044,585

538,000

76,958

77,860

2,190,203

2,139,310

163,636

204,711

33,150,440

21,002,493

LIABILITIES

Due to Central Bank Deposits from other banks Customer deposits Securities issued Funds for staff benefit and other liabilities

Equity reserves Revaluation reserve Other reserves Net profit TOTAL LIABILITIES

31 December 2001

31 December 2000

PLN ‘000

PLN ’000

Commitments granted

9,764,895

6,094,946

Commitments received

1,120,926

728,119

111,356,152

23,166,816

1,391,792

913,698

123,633,765

30,903,579

OFF-BALANCE SHEET ITEMS

Commitments due to sale/purchase operations Other off-balance sheet items TOTAL OFF-BALANCE SHEET ITEMS

9

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

2.1.2

Profit and loss account 01.01.2001 – 31.12.2001 PLN ‘000

01.01.2000 31.12.2000 PLN ‘000

Interest income

2,701,174

2,128,465

Interest expense

(1,961,546)

(1,403,199)

Net interest income

739,628

725,266

Fee and commission income

529,689

366,704

Fee and commission expense

(45,043)

(35,035)

Net fee and commission income

484,646

331,669

Income from shares and other securities

50,436

18,748

Net result on financial operations

16,328

(3,063)

783,468

482,658

2,074,506

1,555,278

80,192

81,252

(90,682)

(59,988)

(1,051,475)

(816,835)

(160,903)

(119,434)

Charges to provisions

(1,064,053)

(724,583)

Release of provisions

560,232

369,756

(503,821)

(354,827)

347,817

288,446

13

19

Profit before taxation

347,830

285,465

Corporate income tax

(184,194)

(80,754)

163,636

204,711

Net profit on foreign exchange Profit on banking activity Other operating income Other operating expenses General expenses Depreciation

Net charge to provisions Operating profit Extraordinary gains (losses)

Net profit

10

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

2.2

Selected financial ratios 31 Dec 2001 PLN ‘000

31 Dec 2000 PLN ‘000

33,150,440

21,002,493

347,830

285,465

163,636

204,711

5,742,054

3,034,840

21.2%

15.6%

Net profit to average own equity

3.7%

7.1%

Net profit to average balance of assets

0.6%

1.0%

53.0%

28.3%

Total assets

(1)

Profit before taxation Net profit

(2)

Net shareholders funds (excluding current year’s profit) Capital adequacy ratio

Tax to profit before taxation

(3)

Net shareholders funds as a proportion of total funds

17.8%

Loans and advances to customers to total assets

42.8%

15.4%

47.9%

The rate of consumer price inflation during the year ended 31 December 2001 was 3.6% based on Główny Urząd Statystyczny (Central Statistical Office), and in the same period exchange rate of USD against PLN decreased by 3.9% to 3.9863. 2.3

Interpretation of selected financial ratios In the following analysis of selected financial ratios, the data for 2000 relates to Bank Handlowy w Warszawie SA before its merger with Citibank (Poland) S.A. in February 2001. For more details on the merger, please refer to the Introduction of the Bank’s financial statements (point 4).

(1)

The Bank’s assets and liabilities increased as compared to 31 December 2000 by PLN 12,147,947 thousand (i.e. 57.8%). The majority of changes resulted from the merger of Bank Handlowy w Warszawie SA with Citibank (Poland) on 28 February, 2001. Total assets of Citibank (Poland) S.A. amounted to PLN 9,641,927 thousand on the date of the merger. The most significant increases were noted in the following positions: ‘cash and operations with Central Bank’ by 232.1%, ‘net due from non-financial sector’ by 41.2% and ‘other assets’ by 148.9%. The increase of liabilities is mainly a result of changes in the following positions: ‘other liabilities’ (in this: financial instruments settlements) increase by 244.5% and ‘due to non-financial and budget sector’ by 69.3%.

11

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

(2)

Net profit for the 12 months ended 31 December 2001 decreased in comparison with the prior year by PLN 41,075 thousand (i.e. 20.1%). This change resulted mainly from the increase of taxation by PLN 103,440 thousand (i.e. 128.1%).

(3)

The effective tax charge increased from 28.3% in 2000 to 53.0% in 2001. The increase is due to higher permanent differences in 2001. The increase was due, in part, to application of lower future rates of tax (according to the actual tax legislation) to deferred tax amounts.

3

Detailed report

3.1

Accounting records To the date of the merger of Bank Handlowy w Warszawie SA with Citibank (Poland) S.A. on 28 February, 2002, the Bank’s Chart of Accounts was employed consistently within the whole Bank and was based on the Banking Chart of Accounts introduced by the Regulation of the President of NBP No. 4/95 dated 22 February 1995 (Official Journal of the NBP No. 6, item 11 with subsequent amendments). Currently, the Bank is in the process of updating its Chart of Accounts and implementation of a new computer system. During 2001 the Bank’s financial statements records are maintained in different computer systems. These systems were closed independently at 31 December 2001. In order to generate the Bank’s financial statements, the general ledgers produced separately in the aforementioned systems were consolidated.

3.2

Internal control The internal controls in place are designed to ensure completeness of documentation and presentation of assets and liabilities, income and expense and contingent liabilities. Authorised persons approve transactions performed by the Bank. The system of internal controls provides adequate segregation of duties concerning the realisation of transactions and recording them in the accounting system.

The Bank maintains an Internal Audit Department. As at 31 December 2001 it employed 18 people. Activities of the Internal Audit Department are based on previously approved annual plans, but may also include ad hoc audits. 3.3

Notes to the financial statements Information included in the notes to the financial statements (introduction, notes and additional notes) is presented completely and accurately. The introduction, notes and additional notes to the financial statements form an integral part of the financial statements.

3.4

Statement of cash flows The statement of cash flows has been properly prepared and is consistent with the balance sheet and profit and loss account.

3.5

Directors’ report on the Bank's activities

12

Bank Handlowy w Warszawie SA

kpmg

Auditors’ report for the year ended 31 December 2001 TRANSLATION

The information presented in the Management Report on the Bank's activities is consistent with the financial statements.

3.6

Changes in Polish Accounting Act From 1 January 2002, a new accounting act came into force in Poland. Changes introduced are to bring existing Polish Accounting Standards further in line with the International Accounting Standards. The effect of changes to the accounting policies applied in these financial statements at 31 December 2001 has not been quantified by the Bank, however it is not anticipated that such changes will have a significant impact on the net assets of the Bank

3.7

Information on the auditors’ opinion Based on our audit of the financial statements as of and for the year ended 31 December 2001 we have issued an unqualified opinion.

signed on the Polish original .................................................... Certified Auditor No. 3683/5018 Janina Skwarka

signed on the Polish original .......................................................... For KPMG Polska Audyt Sp. z o.o. Certified Auditor No. 796/1670 Bogdan Dębicki, Member of the Board of Directors

signed on the Polish original .......................................................... For KPMG Polska Audyt Sp. z o.o. Richard Cysarz, Proxy

Warsaw, 25 March 2002

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